Home Loan Prepayment
A lump-sum part-payment doesn't just shrink the balance — it deletes all the future interest that balance would have generated. See exactly how much, and choose between a shorter loan or a lighter EMI.
Model a part-payment reduce tenure vs reduce EMI
§1Why prepayment punches above its weight
Interest is charged on the outstanding balance every month. Remove ₹5 lakh from the balance and you remove the interest that ₹5 lakh would have cost every remaining month — at 8.5% over 16 years, roughly ₹4.6 lakh of interest for a ₹5 lakh payment when you keep the EMI unchanged.
§2The gotchas
Option A almost always saves 2–4× more interest than option B. Choose B only if the monthly cash-flow relief is what you actually need. Banks default to B unless you insist — the shorter tenure is worse for them.
The same ₹5 lakh prepaid in year 2 can save 3× the interest it would save in year 12, simply because more interest-bearing months remain. If you plan to prepay, front-load it.
RBI bars prepayment charges on floating-rate home loans to individuals. Fixed-rate loans can carry ~2% foreclosure charges. Some banks set a minimum part-payment (often 1–2× EMI).
Prepayment is illiquid — you can't un-prepay. Keep 6 months of expenses aside first, and clear costlier debt (personal loans at 14%, cards at 40%) before the home loan at 8.5%.
§3Related
Rebuild the full schedule on the EMI calculator.